Bombarded bosses 'losing big picture'

Company boards are struggling to focus on business priorities and cope with diversions produced by scandals and City short-termism, say researchers.

Their assessment, two years after the Higgs report attempted to chart a new corporate governance path, suggests some boardrooms are wilting under the pressure with the risk of schism among directors.

The analysis in a report, produced jointly by the Corporate Research Forum and the Performance and Reward Centre, draws heavily on interviews with 40 directors, including company chairmen and chief executives for its pessimistic assessment of the state of British boardrooms.

Two authors, John Roberts, from the Judge Business School at Cambridge University who carried out much of the research for the Higgs report and Don Young, a consultant, highlight the way boardrooms are increasingly focused on faithfully sticking to regulatory requirements and rules.

They also suggest that the attempt in the Higgs report to encourage boards to demonstrate more openness and trust is being sidelined by the short-term pressures, heightened by corporate scandals and abuses of executive power.

Directors are also being forced to devote more time and money to keeping investors happy at the expense of maintaining the strategic momentum of the business, they add.

Mr Young said: "Issues like business scandals and the fact that hedge funds now account for 40pc of the stock market business have distracted from the strategic role of the board."

The report argues that while executives are enjoying better rewards the risks they face are considerable, particularly in terms of job security.

Equally non-executive directors are uneasy about the increased commitments and time they are having to make to fulfil more demanding responsibilities and concerned about the risks to their personal reputation and liabilities. The report suggests unintended and negative consequences can result from the link between performance and executive rewards.

"High levels of executive pay, and in particular share options, can be seen to have created rather than merely aligned executive self-interest," say the authors.

They also express concern about the risk of non-executive directors becoming "policemen" to safeguard against corporate abuse. It could weaken rather than strengthen the board's capacity to improve performance and "may unintentionally contribute to value destruction".

Mr Roberts said: "The danger here is that the board becomes distracted from focusing on strategy, divisions are created between executive and non-executive directors and the board can become divorced from the business."

The authors suggest boards should make more determined efforts to contain short-term pressures through a "clear line of sight" into the business.

"Where boards are divided by schisms between the roles and concerns of executives and non-executives this is seldom possible," they say.

The Role of the Board in Creating a high performing Business, published November 18. For more information: Corporate Research Forum, www.crforum.co.uk; Performance and Reward Centre, www.parcentre.com.